Market participants are virtually certain that the Federal Reserve will announce a substantial amount of asset purchases at the conclusion of its November meeting on Wednesday, according to the latest CNBC Fed Survey.
On average, market participants look for the Fed to announce $457 billion in asset purchases, down from the $490 billion estimated in mid-October.
In written commentary, one survey respondent suggested that the Fed has been trying to reduce market expectations for the latest round of asset purchases—known as quantitative easing—which could explain the lower figure. But the median forecast at $500 billion is unchanged from the prior survey.
Survey respondents, which include economists and fixed-income and equity-fund managers, once again showed a fairly wide distribution of forecasts for the Fed. In fact, 22 respondents see the November announcement coming in at less $300 billion.
The largest number, 32, put the QE amount exactly at $500 billion and 13 respondents look for greater than $500 billion.
Drew Matus of UBS is looking for a smaller announcement in November of $200 billion, but he says that’s just for starters.
“We expect the QE2 announcement will be 'open ended' and any announced amount represents a "down payment," he said.
Fed Chairman Ben Bernanke has championed transparency at the Fed, which includes the Fed and the market being on the same page about the central bank’s actions ahead of its meetings. However, calibrating those expectations was easier when the Fed adjusted its interest rate policy.
Now that those rates are at zero and adjusting the balance sheet size is the new policy tool, it’s unclear how precise the Fed can be at tweaking and delivering on market expectations. That’s especially true since members of the Fed’s Open Market Committee (FOMC) do not appear to be unanimous on either the right steps or the amounts.
Clearly, market expectation such as those shown in the CNBC Fed Survey, will be a factor in the Fed's decision on Wednesday.
Former Cleveland Fed President Lee Hoskins is among the respondents who oppose the move, saying, “QE2 is a reckless policy that produces risks that far outweigh potential rewards.”
Such comments reflect attitudes among many nonvoting hawks on the FOMC. However, a majority of the voting members on the committee have publicly spoken favorably of additional QE.